Good Thursday AM,
Well what started out to be a promising day, has flip flopped against us. No data other than unemployment claims which were as expected kept the 10yr at 4.54% and mortgage bonds mostly flat. As I shared, lots of fed speak today with the most important, the big dawg Chairman Powell stepping up to the mic a bit ago. He far overshadowed one of his generals, Austan Goolsbee from Chicago who commented earlier in the am with “the recent run-up of longer-term borrowing costs could become more important as the central bank shifts its focus from how high to raise interest rates and toward how long to hold them near a 22-year high”.
The Powell recap is below…
And since then, the 10-yr note has jumped to 4.63% with mortgage bonds off 42bps. There is more economic review to share but that can wait. Tomorrow is Veteran’s Day and the bond market is closed so I would anticipate rates to worsen a bit from here with the holiday weekend volatility.
Thank you to all our Veterans who have stood up to protect the us all. God Bless!
Federal Reserve Chairman Jerome Powell said Thursday that he and his fellow policymakers are encouraged by the slowing pace of inflation but are unsure whether they’ve done enough to keep the momentum going.
Speaking a little more than a week after the central bank voted to hold benchmark policy rates steady, Powell said in remarks for an International Monetary Fund audience that more work could be ahead in the battle against high prices.
“The Federal Open Market Committee is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance,” he said in his prepared speech.
The speech comes with inflation still well above the Fed’s long-standing goal but also considerably below its peak levels in the first half of 2022. In a series of 11 rate hikes that constituted the most aggressive policy tightening since the early 1980s, the committee took its benchmark rate from near zero to a target range of 5.25%-5.5%.
Those hikes have coincided with the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, to fall to an annual rate of 3.7%, from 5.3% in February 2022. The more widely followed consumer price index peaked above 9% in June of last year.
Powell said that inflation is “well above” where the Fed would like to see it.“My colleagues and I are gratified by this progress but expect that the process of getting inflation sustainably down to 2 percent has a long way to go,” he said.
As he has in recent speeches, Powell stressed that the Fed nevertheless can be cautious as the risks between doing too much and too little have come into closer balance.
“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” he said. “We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening.”
Markets are largely convinced the Fed is through hiking rates.
Futures pricing, according to the CME Group, indicates less than a 10% probability that the FOMC will approve a final rate hike at its Dec. 12-13 meeting, even though committee members in September penciled in an additional quarter percentage point hike before the end of the year.
Traders anticipate that the Fed will start cutting next year, probably around June.
Powell noted the progress the economy has made. Gross domestic product accelerated at a “quite strong” 4.9% annualized pace in the third quarter, though Powell said the expectation is for growth to “moderate in coming quarters.”
Unemployment remains low, though the jobless rate has risen half a percentage point this year, a move commonly associated with recessions.
Powell noted that the Fed is “attentive” that stronger than expected growth could undermine the fight against inflation and “warrant a response from monetary policy.”
Please remain safe and healthy, enjoy the holiday weeeknd, and first make today great!